Nintendo’s Woes Don’t Mean Game Over For Its Consoles

In a rare admission of setback, the president of Nintendo Co. acknowledged Friday that he misread the pace of change in the gaming industry caused by the spread of smartphones, saying it was time for a business structure rethink. But that doesn’t mean Nintendo is ready to abandon its console-centered strategy.

Associated Press

A Super Mario figure greets visitors as children play at Nintendo showroom in Tokyo on Jan. 17.

Despite price cuts and the launch of some of Nintendo’s hottest game titles, year-end holiday sales of the company’s flagship Wii U videogame console were tepid. The company was forced to slash its annual sales forecast for the Wii U by two-thirds to 2.8 million units. It now expects a loss instead of a profit, and its shares tumbled 17% on Monday.

The Wii U’s flop is drawing comparisons with Sega Corp.'s Dreamcast, the failure of which prompted the Japanese game maker to withdraw from the console business in 2001. Investors are clamoring for a similar, drastic strategy shift, including focusing more on capitalizing on game titles and making them available on mobile devices or rival consoles, at the expense of the console business.

But don’t hold your breath. Nintendo still has one star performer — its 3DS handheld, which management points to as what is right about its strategy. While the company cut its sales forecast for the handheld by 25% to 13.5 million units this fiscal year ending March, in absolute terms, the revised numbers are far from weak. The 3DS was the top-selling console in 2013 worldwide, outselling both Sony Corp.'s PlayStation 4 and Microsoft Corp.'s Xbox One in unit terms in December in the U.S., according to the NPD group.

“The spread of smart devices does not spell the end of game consoles. It’s not that simple,” President Satoru Iwata said at a news conference Friday. The key is to figure out a way to use smartphones to make people aware of Nintendo’s games, and encourage them to try out the console version of the games, Mr. Iwata said.

“It doesn’t mean that we should put Mario on smartphones,” he said.

While that may sound like bravado, the numbers give Nintendo good reason to resist going the way of Sega. Putting Mario and Pokemon on the iPhone could hurt 3DS sales, and trying to maneuver Mario on a touchscreen would be frustrating at best.

The 3DS starts at $170 per handheld, while Nintendo’s best-selling games retail for about $40 upfront, in a market teeming with smartphones games that are free to download, but encourage players to buy items to win. And whereas makers of game apps for smartphones have to pay hefty fees to Apple Inc. or Google Inc., Nintendo gets all the revenue from the games it sells.

In defending its three-decade-old console strategy, Mr. Iwata has said in the past that the short-term benefits of the mobile-apps market weren’t worth the risk of harming the company’s strategy of combining its hardware in unique ways. On Friday, he repeated his mantra: good games sell hardware. It’s just that customers now need more convincing.

Mr. Iwata noted that GungHo Online Entertainment Inc.'s hit smartphone game, “Puzzle and Dragons” became a million-seller on the 3DS within a month of its launch on Nintendo in Japan in December, although it was already ubiquitous on mobile phones.

Nintendo’s reliance on proven franchises is understandable. But the fact that most date back decades suggests this reliance may begin to limit the company’s prospects, as Sony and Microsoft woo independent game makers to help them amass potential new hits.

In the meantime, it is worth noting that Nintendo is beefing up its research and development budget, and that Mr. Iwata promises to surprise game players in the future. While there are plenty of unknowns, Nintendo isn’t saying game over to consoles just yet.

Comments (5 of 26)

You say:
"And whereas makers of game apps for smartphones have to pay hefty fees to Apple Inc. or Google Inc., Nintendo gets all the revenue from the games it sells."

You are implying a discrepancy between the profit models behind software sale among these 3 companies when they are in fact very similar:

- 3rd party developers pay 30% to Apple and Google (and MSFT for that matter) for the software being distributed by said companies via their online software stores. On the Nintendo 3DS, 3rd party online software have a similar if not worse Nintendo/developer split. Additionally, the cartridge games for the 3DS require custom ICs from Nintendo in manufacturing (oftentimes Nintendo is the exclusive manufacturer of the cartridges), equally taxing the profitability of 3rd party developers.

- Applications written by Apple and Google get all the revenue from their sale, just like games written by Nintendo have all the profits going to Nintendo.

Yes, all 3rd party developers pay "hefty Fees" (not really, considering cost of distribution, cutting out middle men, etc) in online stores, and yes, all 1st party companies "get all the revenues from the [apps they] sell[s]", but in reality, 3rd party developers get more revenue share from Google, Apple AND MSFT than they do from Nintendo.

Additionally, the market for apps on these other devices (iOS, Android, Win Phone 8) is so much larger than that for the 3DS that the smaller up-front app cost and in-app purchases have been much more profitable for said 3rd party developers than on the 3DS.

8:44 am January 22, 2014

Farva wrote:

Nintendo should re-release the NES, SNES & N64 systems & games & they would seriously make a killing! Those systems sell for hundreds of dollars online & at auctions. They could bring the prices down & still sell a lot. Many fans of the older systems like playing them with their kids & they are more family oriented for the most part.

1:06 am January 22, 2014

Sam from California wrote:

"Nintendo has just been too stubborn… It’s that simple. First party games selling well will increase your profitability – BUT without 3rd party support you won’t be able to move enough hardware."____
I don't agree with that. People buy Nintendo consoles to play Nintendo games, games made by Nintendo itself. Nintendo makes high quality family games that appeal to the young and old alike. I'm a big Nintendo fan but I haven't bought the Wii U yet. Why? Because I don't see enough games made by Nintendo itself for it. That's where they're failing. Haven't even bothered to check how many 3rd party games there are for it because that's not important.

11:48 pm January 21, 2014

A wrote:

Nintendo has just been too stubborn... It's that simple. First party games selling well will increase your profitability - BUT without 3rd party support you won't be able to move enough hardware. Dollars are finite and time is finte - Nintendo needs to cater to 3rd party developers more. For one thing - they should be "begging" for the best sports game ports - since that moves a lot of units. They missed a big opportunity with the Wii U's innovative touch screen!

11:21 pm January 21, 2014

Jack wrote:

Maybe release all of their old games onto the smart phones? I.E Original Legend of Zelda, and Mario. and all the older Pokemon games, like maybe up to Emerald Version. Those games aren't being made anymore, people would definitely get them if they came to the smart phones!

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